Issue

Region

Type

Tags

The role of Petrobras in the Lava Jato corruption scandal and 2014’s steep drop in oil prices have spelled a turbulent recent period for Brazil’s oil and gas sector. After several years without offering any new bid rounds, the Brazilian government under President Michel Temer has revamped energy policy and opened production and exploration up to competition. The Brazilian oil & gas industry is going through its “largest transformation ever,” said Décio Oddone, Director-General for the Brazilian National Petroleum, Natural Gas and Biofuels Agency (ANP) at an event organized by the Inter-American Dialogue on June 28th.

Since 2016 Brazil has taken major steps away from Petrobras’s 60-year monopoly and towards a diverse and competitive oil sector, notably via the authorization of other companies to compete in developing Brazil’s enormous pre-salt reserves, which account for 54% of production and virtually all new production in the past five years. As a result of the five bid rounds held during 2017, by 2027 Brazil expects up to US$ 80 billion of new investments, US$ 334 billion of tax revenues, 17 new platforms, and a peak production of 2 million barrels per day, explained Oddone. When combining this with projects in progress and the potential unlocked by the recent loosening of local content requirements, the government places total production at 5.5 million b/d by 2027.

José Firmo, President of the Brazilian Petroleum, Gas and Biofuels Institute (IBP) emphasized that the U.S. shale boom increased the pressure on Brazil to enhance efficiency in its deepwater operations. For example, a single well in the Libra project is now producing 51,000 bpd. It will be important for Brazil to attract major oil companies with advanced technology and ample capital to continue developing the ultra-deepwater pre-salt fields, Firmo said.

Much work remains to be done in opening up the refining sector, where Petrobras’s de facto monopoly (it is responsible for 99% of refining) has produced an import dependency despite Brazil’s massive crude oil output. Firmo cited Petrobras’s divestments in refining, as well as transport, as important steps in diversifying the entire supply chain. Oddone noted that it is likely that LNG imports will be replaced by domestic natural gas production in the near future.

Finally, neither speaker expected radical changes to take place as a result of October’s election. They noted that Brazil has a long history of honoring contracts, and that the long time horizon of the industry means that the next 5-7 years of activity are already filled, with a high volume of major projects coming online in the next 3-5 years. In terms of downstream, Oddone also stressed that the government has no intention of intervening in Petrobras’ fuel pricing policies, despite the truckers’ strike over diesel prices that devastated the Brazilian economy in May. On the other hand, it is unsustainable for the government to indefinitely continue subsidizing fuel to below international prices, especially given the precarious position of Brazil’s budget. Inevitably, a long-term solution will need to be identified.

WATCH THE RECORDING OF THIS EVENT HERE:

The Inter-American Dialogue engages our network of global leaders to foster democratic governance, prosperity, and social equity in Latin America and the Caribbean. Together, we work to shape policy debate, devise solutions, and enhance cooperation within the Western Hemisphere.